edward holloway -- how guernsey beat the bankers

7/31/2019 Edward Holloway -- How Guernsey Beat the Bankers

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ISBN 0 85694 239 1

Guernsey Historical Monograph No. 23General Editor: J. Stevens Cox, F.S.A.

H O W G U E R N S E Y

B E A T T H E B A N K E R S

by

EDWARD HOLLOWAY.

The story of how the Island ofGuernsey created its own money,

without cost to the taxpayer,and established a prosperous

community free of debt.

T O U C A N P R E S SM O U N T D U R A N D , S T . P E T E R P O R T ,

G U E R N S E Y , C . I .1981


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A NOTE ON THE WRITER, EDWARD HOLLOWAY.

Holloway was a founder member and has beenHonorary Secretary of the Economic Research Councilsince 1955. He also edits a quarterly journal Britain andOverseas.

He became interested in economic and monetarypolicy in the depression years of the 1930s and foundedthe Economic Reform Club and Institute in 1936. The mainobjective of this organization was attained with the settingup by H.M. Government of the Radcliffe Committee oncredit and currency in 1957.

Holloway has made a special study of economicquestions particularly in relation to monetary policy andalso international trade and payments. Over the years hehas lectured to hundreds of audiences including fifth and

sixth forms at many of the leading public schools, theR A F , Navy etc. He is joint author of "Money: The DecisiveFactor", published in 1959. Other publications include"The Case for an Atlantic Free Trade Area" in 1967,"Inflation and the Function of Monetary Policy in Britain" in1971 and "Honest Money: The Case for a CurrencyCommission" in 1976.

He sponsored a 'Programme for National Recovery' in1967. This programme was supported by 19 economists

and industrialists and resulted in the publication of liveresearch reports which have played a significant part inchanging the climate of opinion in the sphere of economicandmonetary policy.

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New Arcade and Market Place, St. Peter Port, c.1840.After a lithograph published by M. Moss, bookseller,Guernsey.

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PREFACEby James Glyn Ford

This pamphlet, "How Guernsey Beat the Bankers", is areprint of one issued in 1958 by the Social CreditMovement. It tells how the Guernsey States from 1819-1836 manipulated the issue of notes to allow a number ofpublic works to be carried out including both theconstruction of the Guernsey Market and the rebuilding ofElizabeth College without increasing public debt. Thedetails are contained within the pamphlet itself. Theauthor, rightly, saw this as an anticipation of the idea of

social credit. As such, for the very different audience thatwill read it now, a very brief background to the ideas andhistory of the Social Credit Movement in Brita in may provehelpful.

The Movement's origins lay with the economic theoriesof Major C.H. Douglas, who early this century wrote anumber of books explaining that the then current economicproblems were caused by the arbitrary control of the moneysupply by the banks and bankers. He proposed that money

backed by gold or paper should be replaced by notes backedby the real wealth of nations, their goods, plant andmachinery. A consequence of this would be that theparasitic role of bankers in the economy would be removedand the economy would as a result expand.

Social Credit ideas have never become widely acceptedalthough in the 1930s they gained some currency. In 1929a Social Credit Party was established in Britain under theleadership of John Hargrave. The 1930's was a time ofpolitical upheaval, and the Social Credit Party's para-

military Greenshirts added another hue to the colourfulstreet demonstrations of the decade, with the marchingand countermarching of Moseley's Blackshirts, the redshirted Independent Labour Party and the khaki of thecommunists. At their peak in 1933 the Greenshirts couldcall on 10,000 supporters for their demonstrations inBritain's cities. At times the personification of theircampaign of 'out with the Vipers' (i.e. the bankers) took onan anti-semitic flavour.

The beginning of the end for them came in 1936 with thepassing of the Public Order Act which banned politicaluniforms. Deprived of the presence that came with theimpact of marching uniformed ranks they, along with their

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colourful counterparts, faded from the scene. All thatremains in Britain now is a small group of enthusiasts.

Elsewhere in the English speaking world the Social CreditMovement has had a fitful existence. Both New Zealandand Canada have elected Social Credit M.P.'s to theirnational parliaments. At provincial level in Canada theyhave had strong support in Quebec, and in Alberta formedthe government. Even in these areas they are now indecline.

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INTRODUCTION

The announcement by the Chancellor of the Exchequer

in his budget speech that he intends to set up a committeeto inquire into monetary and credit policy is bound to focusattention on the workings of our financial system. Over theyears there have been many interesting monetaryexperiments undertaken in various parts of the world.

These have mainly taken place in small communities butthey are none the less of interest. For example there wasthe experiment in the island of Guernsey in the periodfollowing the Napoleonic wars. There ware also

experiments in the towns of Swanenkirchen in Bavaria andWorgl in the Austrian Tyrol which took place in the years ofdepression following the 1914-18 war. Anotherinteresting example is the amazing development whichtook place in the island of Gosaba off the coast of India.These and similar experiments had one factor in common.A depressed and unproductive community was changed ina comparatively short while into an active prosperous andhappy community.

The story of the island of Guernsey is particularlyinteresting from our point of view for it is a re latively easymatter to see for oneself the actual buildings which werecreated as a result of these experiments. For examplethe Market House and Elizabeth College were twoexamples of the result of the sensible money policy adoptedby the island Parliament in the early part of last century.Other improvements included better roads, a modernsewage system; all of which were constructed without adebt being incurred by the community.

These experiments have a considerable bearing uponour present monetary policy which, as is beingincreasingly realised, is in need of considerable revision.We make no apology therefore for re-telling the story of thesuccessful monetary experiment in Guernsey.

THE GUERNSEY MARKET SCHEME.

Our story opens in the year 1815. It was a year ofconsiderable difficulty for the people of Britain but the

people of the little island of Guernsey were particularlyhard hit. The effects of the Napoleonic wars had resulted ina state of despair on the part of the island community dueto the acute economic distress then prevailing. The

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following extract from a document presented by the States(as the island Parliament is called) to the Privy Councilspeaks very eloquently on the state of affairs:

"In this island, eminently favoured by nature,nothing has been done by art or science towards theleast improvement; nothing for the display or enjoy-ment of local beauties and advantages; not a road, noteven an approach to the town, where a horse and cartcould pass abreast; and the deep roads only four feet sixinches wide, with a footway of two or three feet, fromwhich nothing but the steep banks on each side can beseen, appeared solely calculated for drains to the

waters which, running over them, rendered them everyet deeper and narrower. Not a vehicle, hardly a horsekept for hire, no four-wheeled carriage existed of anykind, and the traveller landed in a town of lofty houses,confined and miserably-paved streets from which hecould only penetrate into the country by worse roads,left the island in haste and under the most unfavour-able impressions.

"In 1813, the sea, which had in former times

swallowed up large tracts, threatened, from the de-fective state of its banks, to overflow a great extent ofland. The sum required to avert the danger wasestimated at more than 10,000, which the adjoiningparishes subject to this charge were not in a conditionto raise. The state of the finance was not consolatory,with a debt of 19,137 and an annual charge forinterest of 2,390, the revenue of 3,000 left only600 for unforeseen expenses and improvements.Thus, at the peace, this island round itself with littleor no trade, little or no disposable revenue, noinducement for the affluent to continue their abode,and no prospect of employment for the poor."

What a tale of woe. Small wonder that the people weredepressed and any that could were making their way to themainland. As often happens in communities when thereare major difficulties, a committee was appointed in 1815to consider in particular the overcrowded state of themarket, of which it was said that "humanity cries out

against the crush which it is difficult to get out of, andagainst the lack of shelter for the people who, often arrivingwet or heated, remained exposed for whole hours to windand rain, to the severity of the cold and the heat of the sun."

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The committee examined the situation, and came to theconclusion that further taxation was impossible. Thealternative was to try and borrow money from the banks.But this entailed the payment of a high rate of interest,which they could not afford, particularly in view of the factthat these interest payments would continue for years andwould eventually mean that, although the original sum hadbeen repaid in interest charges, the capital sum wouldremain as a debt.

Fortunately for the people of Guernsey, they had at thattime among their leaders some honest men of keenintellect, who put forward the revolutionary suggestionthat the States should take advantage of their ancientprerogative and produce their own notes to finance the re-building of the market. At first this proposal was turneddown. But later in the same year the proposal to issue Statenotes was agreed to, for a different purpose. The financecommittee reported that 5,000 was wanted for roads anda monument to the late Governor, while they had only1,000 in hand. It was agreed that the remaining 4,000should be raised by the issue of State 1 notes, 1,500 of

which should be payable in April 1817, 1,250 in Octoberthe same year, and 1,250 in April 1818. "In this manner"they said, "WITHOUT INCREASING THE DEBT OF THESTATES, we can easily succeed in finishing the worksundertaken, leaving moreover in the coffers sufficientmoney for the other needs of the States."

A SUCCESSFUL VENTURE.

How wise they were is proved by the event. The successof this first creation of State money was so great that it wasrapidly followed by others. In June 1819 the question of themarket became ever more acute, and it was agreed tofinance the rebuilding of it, not in the orthodox manner byraising a loan, but by the State creating the necessary notes"interest free".

The following comment made by the finance committeeat a later date shows how successful the venture had

become. It was at the time when a further issue of noteswas made to diminish the interest-bearing debt to theStates. The finance committee declared: "The States couldincrease the number of notes in circulation without danger

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up to 10 000 in payment of the debt and the committeerecommends this course as most advantageous to theStates' finance, as well as to the public, who, far frommaking the slightest difficulty in taking them, look for themwith eagerness."

And so the story went on. On 29th March 1826 a furtherissue was authorized to re-build Elizabeth College, whichhad been founded in 1563 by Queen Elizabeth, and someparochial schools. The Ba ili ff of that time Daniel de LisleBrock in his address to the States Assembly expressed

his belief that the creation of this new money was a greatbenefit to the States, and caused no inconvenience

because of the great care with which it was issued.Various other creations of new money took place forprojects of re-building, widening the streets of St. PeterPort, reconstructing some of its buildings, making newroads and public works of many kinds. The experimentscontinued over a period of 20 years, by which time thepeople of Guernsey had developed from a depressedunhappy state to a position of prosperity and happiness.The following brief quotation shows how improved was the

situation as a direct result of the wise and statesmanlikeaction of the Island Parliament. Daniel de Lisle Brock, towhom, it seems, much of the credit must go, said in 1827:

"To bring about the improvements which are theadmiration of visitors and which contribute so much tothe joy, the health and well-being of the inhabitants,the States have been obliged to issue notes amountingto 55,000. If it had been necessary and if it were stillnecessary, to pay interest on this sum, it would be somuch taken from the fund earmarked to pay for the

improvements made and to carry out new ones.To talk of joy, health and well-being is a very different

story from the position in 1815, when it was little or notrade, little or no disposable revenue, and no prospect ofemployment for the poor." But this happy state of affairswas not to the liking of everyone, and opposition to the ideaof the Island States creating their own "debt-free" moneyhad been growing over the years, particularly among thebanking interests on the island. A new bank, called the

Commercial Bank, was founded in 1830. This institution,together with the old bank, failing to prevent the growingprosperity of the islanders, began to issue notes at its owndiscretion, flooding the island with paper money.

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Reference has already been made to the care exercised indeciding the quantity of money to be issued by the States,and now Daniel de Lisle Brock sought to restrain the privatebanks from this anti-social activity.

There remains on record his spirited speech to theStates meeting held in September 1836 on this subject,and the following two extracts are of particular interest:

"No one has a right to arrogate to himself the powerof circulating a private coinage on which he imprints forhis own profit an arbitrary value.

"With these facts before our eyes we must realisethe necessity of limiting the issue of paper money to theneeds and customs, and the benefit, of the communityin general. Permission cannot be granted to certainindividuals to play with the wealth and prosperity ofsociety."

In spite of all, however, the banks finally won the day.Despite a careful search of the records, no explanation ofwhat actually happened can be found merely anexchange of letters between representatives of the banksand the Bailiff of the Island. In this, the former suggested

that the States should cease to make further issue, shouldwithdraw 1,500 from circulation, and have no more than40,000 in circulation. To this proposal the Bailiff agreed.Having read the account of his fighting speech to theStates, it is difficult to understand what combination offorces caused him to give way. But at least it can be saidthat the inhabitants of the island benefited materially fromthe monetary experiment which took place, when theisland Parliament created its own money 'interest free'

over 150 years ago.

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POSTSCRIPT.

Although the original experiment came to an abrupt end

in 1836, there was a further development in 1914, justafter the outbreak of the first world war. The demand for anincrease in the supply of money was then so great that theRoyal Court passed an Ordinance making State notes andthose issued by the Banks legal tender. But the Banks wereprohibited from increasing their note issue, and alladditional notes were issued by the States.

There was a great demand for these States notes, andthey first had to be printed locally by two firms in the island:

the Star Company and the Guernsey Press Company, whowere able to provide what proved to be very serviceable fiveshilling and ten shilling notes. These were later replaced

by notes printed on proper bank-note paper with thecustomary watermark. The local banks have now beenabsorbed by the Big Five, so that there is no other local noteissue, other than that of States notes which circulatealongside the more familiar Bank of England notes.

Readers who would be interested to follow up the ideas contained in thispamphlet are recommended the following publications:

Inflation is there a cure? by Edward Holloway.

Expansion or Explosion by Antony Vickers. The Bodley Head.

Economic Tribulation by Vincent Vickers (one time Director of the Bank ofEngland). The Bodley Head.

Great Britain & World Trade edited by Edward Holloway.

All the above are obtainable from the Economic ReformClub & Institute 2a Queen's Parade London N 10

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edward holloway -- how guernsey beat the bankers

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